From Street Stalls to High-End Malls: What Has Changed in China's Milk Tea Market?

If you treat the mainland milk tea industry as a single brand, its challenge is how to stretch from the low end up to the high end. That is not impossible — but the first problem is building an environment and a level of service good enough to make customers sit down.

Every business idea that looks played out may still have a chance. Take the milk tea shop, which looks hopeless.

The new story might be T Plus, a Shanghai tea brand that opened 19 stores in a year and a half; or Heytea, out of Guangdong, which opened 30 to 40 stores on its own over four years before raising 100 million yuan last August. In Guangzhou and Shenzhen, Heytea moves into shopping malls, opening 100-square-meter stores from the start; T Plus usually sets up near office towers — its shop on Middle Huaihai Road sits next door to a Starbucks, and it has even opened beneath the Shanghai Centre near Jing'an Temple.

The milk tea business had gone a long time without a new story. Besides Heytea and T Plus, other new brands have surfaced lately, such as Yifang and Pucha. Their marketing shares several new elements: quality and health, with talk of good tea, "whole-leaf tea" and "fresh milk"; design, with more minimal, fashionable logos, packaging and interiors; and menus full of macchiato and fresh-milk drinks. Judging by where they open and what they charge, they are aimed at young office workers rather than middle and high school students. On the delivery apps, every one of these brands turns up under "afternoon tea."

Shanghai, a picky city, has in fact already been through several waves of milk tea shops: first Kuaisanmiao, Jieke and Chafengbao, then CoCo, Happy Lemon and 1 Point 1, and now this crop.

The earliest chains are gone. They were once wildly popular — at its peak, around 2006, Jieke had 220 stores in Shanghai, and Chafengbao later reached about 150. CoCo and Happy Lemon have probably lasted longest, but milk tea generates little brand loyalty, and the industry has never produced a "big company" the way coffee produced Starbucks. Even with some 1,800 CoCo stores open, you may still think of milk tea as a small business. Service, meanwhile, often seems to be ignored outright.

That has to do with the shape the industry took at the start.

You may still remember what milk tea shops looked like in the late 1990s and early 2000s. Both the product and the way they ran were crude: processed milk tea powder mixed with water. That is also why the person behind the counter shook the cup hard before handing it over.

These shops opened near middle schools, high schools and colleges, or in places like Shanghai's Xigong and Qipu Road, where foot traffic was heavy but spending power was not. They took up 5 or 6 square meters, sometimes less — a takeout window with no seats, wedged between a hand-grabbed pancake stand and a fried chicken cutlet shop.

Strip the names off the earliest brands — Jieke, Chafengbao, Bifengtang Milk Tea — and almost nothing separates them: 3 to 4 yuan a cup, and menus that barely differed. Taro, banana, chocolate, strawberry milk tea.

This is also why milk tea is still called "low-end" today. It offered no experience, and experience is exactly what lets a brand stand apart and charge more.

It also kept the barrier to entry low, which made copying and chasing trends the norm.

Most milk tea shops have since improved their ingredients, brewing tea fresh and mixing it with dairy. Even so, making milk tea is rarely complicated. Tapioca pearls and cheese foam are semi-finished products prepared in advance; when an order comes in, staff combine them. Making coffee to order takes more: the milk foam has to be whipped fresh, and the coffee is usually extracted on the spot.

The process is simple and easy to standardize, yet few milk tea brands keep their output consistent. That comes down to how they train and manage staff.

Chefs and baristas have established professional certifications. Milk tea staff are held to roughly the same standard as ordinary waiters. Training at the big chains is short: 60 days at T Plus, 30 days at 1 Point 1, 15 days at Happy Lemon. Skill levels vary accordingly. Taiwan, where bubble tea was invented, has a "tea blender" certification. Some brands train harder: Chun Shui Tang, which invented bubble tea, uses a master-apprentice system.

Compared with other kinds of food business, opening a milk tea shop is easy.

Startup capital usually runs 350,000 to 400,000 yuan (a prime spot in a first-tier city might take 600,000 to 700,000). Brands with lower prices and student customers, such as Zhennai Huisuo and Migoo, charge even less to franchise; Migoo's fee is 160,000 to 200,000 yuan. A café is harder to open, technically and financially. Pacific Coffee's website lists a franchise fee of 1 million yuan; add rent and staff, and opening one in a first-tier city costs about 2 million.

Because the barrier is so low, milk tea shops are easy to copy and easy to multiply. Most brands open up franchising from day one, and their demands on franchisees are light. Nearly every brand's pitch is the same: you don't need any food-service experience to open a shop. Beyond the fee, some brands — 1 Point 1, T Plus and Happy Lemon among them — require franchisees to run the shop themselves rather than treat it as an investment and hand the daily work to someone else.

The flip side of easy copying is a market full of knockoffs and pile-ons. When milk green tea took off, every brand launched its own.

The latest hit is cheese-foam tea, which some brands call a macchiato. Nestlé Professional supplies dairy to Happy Lemon, CoCo and others; Lu Hang, the company's food category director for Greater China, told QDaily that the craze has sharply raised demand for Nestlé's evaporated milk, condensed milk and other cream products.

Products change slowly. Brands change fast — the industry has already run through several generations of them.

Next to discarded early brands like Jieke and Chafengbao, Happy Lemon and CoCo, which appeared around 2006, arrived with a fuller sense of what a brand is. The clearest sign was that they had a visual symbol and a selling point of their own.

When Happy Lemon reached Shanghai around 2007, plenty of customers remembered the little lemon-headed figure. Some of the earliest reviews said they were "drawn in by how cute the design was," which at least proves the first impression worked.

Each pushed one selling point in its marketing or its products. Happy Lemon's "lemon" line put flash-frozen juice from Pingtung, Taiwan, into the tea. CoCo leaned on being "from Taiwan," playing footage on in-store televisions of CoCo being sold there.

They have also lasted this long because of one important strategy: launching new products, constantly.

CoCo founder Hong Zhaoshui has said the chain replaces 20% to 30% of its products every year. Few of them stay on the permanent menu, and fewer still become the next hit. But they keep the brand feeling new.

Loyalty to any one milk tea brand tends to be thin. Yang Jue, who works at an internet company, drinks milk tea every day; lately her favorite is T Plus. She still switches shops every two or three days. "Because 1 Point 1 and Liannuan Chucha each have their own thing going."

Simon, founder of Shanghai's Seewant Café, who declined to give his Chinese name, told QDaily late last year that unless a chain covers a city, customers will not travel more than 2 kilometers for milk tea, and they show no loyalty. "Coffee is different. It has loyalty. Once you're used to it, you don't keep switching." Seewant sells both coffee and milk tea and runs four company-owned stores in Shanghai. As Simon sees it, milk tea is changing the way coffee did: instant at first, then chains like Starbucks and Costa, and now the specialty shops on the rise.

Fair enough, though milk tea is still not coffee. The industry is not as "complete." Even in the instant-coffee era, Nestlé was already a major international brand.

Still, milk tea really has changed. CoCo and Happy Lemon brought a stronger idea of the chain brand, though that was a stage of fast, bulk replication. What came next was 1 Point 1, which, according to T Plus founder Xu Jiaqi, taught the industry "customization" — adjusting the mix to order, half sugar, less ice, extra grass jelly. Xu has 10 years in the business: he was once CoCo's market-development manager for East China, and later, with two other partners also from Taiwan, ran three 1 Point 1 shops in Shanghai as one of the city's earliest franchisees.

Today's operators all want to dress milk tea up as something more "upscale." Design and visuals are the most direct way to stand apart, and probably the easiest.

"Milk tea shops in Shanghai are basically all alike. Apart from the color, it's one counter, and the lights inside are very bright. To me there's no design, nothing that catches the eye," said a franchisee who declined to be named, describing the previous generation of brands.

Beyond flat graphics, the new brands have begun to think about space. Signs are no longer cheap plastic light boxes but come in more styles: raised lettering, printed graphics. Lighting and walls are no longer uniformly white; wood and bare cement have appeared. Green, white, gray and natural wood now dominate, leaning toward a natural, healthy look.

Looks will only matter more in the food business. We have already written about how platforms like Instagram have reshaped food and dining. For a milk tea shop, good design can pull in franchisees and appeal to young office workers who care about how things feel.

Alice works at an interior design firm. She took a Hey Juice franchise because she liked the brand's yellow shipping-container look. "It feels fresh, and it fits what young people find beautiful right now." The design was one reason she signed up.

Yifang's shopfronts use a Taiwanese retro style from the 1940s and 1950s: wooden windows and counters, dark curtains, and wooden-board menus like a ramen shop's. On Dianping, plenty of reviews single out the store design.

Differentiating by design is ultimately a response to demand for personalized consumption. "Consumers are placing more emphasis on their own needs and on expressing their personal style" — that is how a 2006 Boston Consulting Group report explained consumption upgrading.

Location is the other key to the market's "upgrade." All of them want to get away from the low-end street-stall image, the one that reads as student-ish and downmarket, and into mid-to-high-end malls or business districts thick with office towers. Everyone QDaily interviewed for this story said they wanted to learn from Starbucks and offer an experience of space.

At iapm on Middle Huaihai Road in Shanghai, the most upscale mall in that district, Liannuan Chucha opened a "boutique store" on the second basement level, with 20-odd seats and prices raised a notch. Its neighbors include Häagen-Dazs and Starbucks.

Pucha, a newer brand, picked spaces of the same size, 30 to 50 square meters; its first store opened on East Nanjing Road. Founder Lin Mingjuan believes this "meets some people's need to socialize," and also improves the wait for a drink, instead of leaving customers in the wind and sun outside a window.

Heytea's shops run about 100 square meters, and you can usually find one near a shopping mall in several of Guangdong's larger cities. It recently opened three "lab concept stores" with pour-over display areas that sell straight tea.

On the top floor of Shanghai's Metro City, beside the theater and the cinema, a Cat's-Eye Stone in the Tea Pavilion has appeared, with seats for 20 to 30 people. Besides milk tea and snacks, it sells tea leaves and teaware. This shop, with an average ticket of 25 yuan, is in fact a new brand from Happy Lemon's parent company.

They want to sell milk tea for more, too. Heytea, Liannuan Chucha, Pucha and T Plus have all entered a new price band: above the previous generation's average of 12 to 13 yuan, below the 30-plus yuan of Starbucks and Costa. Their signature drinks mostly cost about 20 yuan.

Heytea's Nie Yunchen told us a 20-yuan ticket is meant to keep the gross margin workable while holding a gap to Starbucks.

Pucha's Lin Mingjuan was an office worker before she started the company. She thinks about 20 yuan is right for her target customers, office workers, who "wouldn't think twice about carrying one in every day."

T Plus drinks average 15 to 18 yuan, and more than a quarter of the large sizes on the menu cost over 20. Xu Jiaqi says that is because ingredients cost more: "Ingredients usually account for 25% to 28% of the price. Ours are around 35% to 38%."

Better ingredients are what every milk tea brand now emphasizes. Happy Lemon and 1 Point 1 work mostly on the dairy; the newer brands work on the tea. Pucha says it cold-brews whole-leaf tea for 10 hours to make its tea base. Heytea has tea merchants make leaves to order and takes part in designing both the flavor and the process; its best seller, Golden Phoenix, is one of these "custom teas." Nie Yunchen says the leaves Heytea uses cost as much as 500 yuan per jin (500 grams). "I hope that one day very expensive tea, including tea that now sells for several thousand yuan a jin, can be made into a 20-or-30-yuan cup that everyone likes to drink."

So far they have all found an audience. Lines outside these shops are a common sight, and the novelty has made them more confident about opening more.

Delivery, more than the stores themselves, is what pushed this wave of milk tea. 1 Point 1 has delivered since the day it opened. Its menu says so up front: free delivery on orders over 30 yuan, buy ten get one free. Rivals either do not deliver or set a higher bar — Happy Lemon requires at least six cups.

Around 2012 and 2013, when 1 Point 1 was founded, delivery platforms were nowhere near as widespread as they are now. Ele.me's main users were still students at a handful of big universities in Beijing and Shanghai. Baidu Waimai and Meituan Waimai did not yet exist.

Now almost every milk tea brand delivers. Baidu Waimai, Ele.me and Meituan Waimai together already account for more than 40% of T Plus's revenue, and the share keeps climbing.

Trendier design, better ingredients, the experience of space — all of it, in the end, is meant to keep up with how young consumers have changed. People born in the 1980s and 1990s have clearly grown pickier about both products and service. One telling example: Pizza Hut, which this generation once saw as "upscale Western dining," has become a place to grab a casual meal.

One question remains: can milk tea go upmarket?

What stands in the way is the stereotype that milk tea is not classy, especially next to straight tea or freshly made coffee. That is why the newer brands are reluctant to call themselves milk tea shops, even though milk tea accounts for much of their menus and their sales. They stress the "tea" instead, and keep phrases like "making tea drinks young" and "promoting tea culture" on their lips.

"Milk tea started out under 10 yuan a cup, so people already have a sense of what it costs to make. It has no pricing power. Coffee is different. When coffee first appeared in public view, it was already expensive, something tied to a way of life, to culture and taste," said Didi, who works at an advertising agency and has been a regular milk tea drinker for 10 years.

Guo Yizhen, who works at a bank, has limited enthusiasm for the big milk tea shops built around space. "If I'm passing by and want something to eat or drink, I'd still go. But if I've made afternoon tea plans with friends, I definitely wouldn't go to a place like that. And I definitely wouldn't go there to talk business." She says she and her friends usually spend about 100 yuan a head at "fashionable cafés" instead — "the kind with a little garden, where they keep cats and dogs," she added.

Yang Jue can accept pricier milk tea as long as it stays under 25 yuan. But she rarely sits down to drink in a mall milk tea shop. As she puts it: "Milk tea shops have too many people coming and going. It gets loud."

If you treat the mainland milk tea industry as a single brand, the challenge it faces is this: how do you stretch from the low end up to the high end? It is not out of the question. Din Tai Fung turned xiaolongbao, a street snack, into a fixture of high-end malls.

Milk tea shops might find some possibilities in Taiwan's Hanlin Tea Room and Chun Shui Tang, both of which claim to have invented bubble tea. Besides tea drinks, they have moved into inventive tea foods, such as tea hot pot. Chun Shui Tang runs flower-arranging and shaken-tea classes; Hanlin Tea Room sells its own merchandise. But both had seating from the day they opened, rather than starting as cheap street stalls.

For a milk tea shop that wants to move upmarket, the first problem is how to build an environment and a level of service good enough to make customers sit down.

(At their request, Didi and Guo Yizhen are pseudonyms.)

Charts by Feng Xiuxia

Unless otherwise noted, the cover image is from Flickr; the long-format cover image is from Heytea.